By Stanley Opara

The framework for the computation and maintenance of Cash Reserve Requirement of all Deposit Money Banks has been modified by the Central Bank of Nigeria.

CRR is the amount of funds that DMBs must hold in reserve against deposits made by their customers. It is the proportion of the total demand, savings and time deposits which banks are expected to keep as deposits with the CBN.

The CBN, in a circular on its website on Thursday, said for Reserve Averaging at the beginning of each maintenance period, banks would be advised of their CRR based on a simple average of daily deposit liabilities (less domiciliary account balances) of the computational period and the applicable ratio announced by the apex bank.

A bank, the CBN said, would have complied with the CRR if its daily average balances in the operating accounts at the CBN (currently RTGS and T24 accounts) throughout the maintenance period, were equal to, or greater than the CRR as computed by the apex bank.

On the length and timing of the computational and maintenance periods, it said the periods for the CRR were increased from two weeks to four or five weeks, depending upon the expected timing of key government transactions.

The CBN said, “The computational and maintenance periods will start on a Wednesday and finish on a Tuesday (holidays permitting), and will be announced at least two periods in advance by the CBN.”

“A maintenance period is lagged immediately by one period to the computational period. A maintenance period will be for the same period as the computational period upon which the CRR is calculated for the subsequent maintenance period.”

On remuneration of the CRR and penalties for non-compliance, the bank said no remuneration would be paid on the CRR but that it might from time to time, consistent with its monetary policy stance, remunerate the balances held by banks in excess of the CRR.

“A bank that has not maintained the required average balance in its operational accounts over the maintenance period will be considered non-compliant with the CRR and will incur a penalty. The penalty will be calculated by multiplying the average daily deficit by the penalty interest rate by the number of days in the maintenance period divided by 365,” the apex bank explained.

The CBN said where a bank had complied with its CRR in the three immediate prior maintenance periods, the penalty interest rate would be two and a half times the rate applicable on the Standing Lending Facility, otherwise it would be five times the rate applicable on the SLF.

 

Source: Punch